UK startups fail to explain equity to employees, study finds

A recent survey of UK and international SMEs found that a large number of employees of those based in the UK were unclear about their equity position.

Promoted by TechCrunch and created by Enternships, Seedcamp, ICE and Gorden and Eden, the 2014 Startup Salary Survey found that while almost 60 per cent of startup employees have a ‘very clear’ idea of their equity position, over 40 per cent of startup employees in predominantly UK startups are either unclear on how much equity they have in the company or know they have none at all.

The average equity awarded to non-founders when entering companies prior to the company receiving any funding was 3 per cent. Around 44 per cent of those surveyed, however, were co-founders of their respective company.

Salary levels were found to be higher than expected, possibly due to better understanding of the talent pool by founders and investors – unfair pay will reduce the pool of applicants even further as larger corporations chase the same talent and offering ‘startup-style’ opportunities – or that those that responded to the survey were the better connected or funded businesses to receive the survey. Those responding to the survey also tended to be founders or managers.

TechCrunch did note that there were several major caveats to the data:

“The nature of the early stage market means there are many differences between businesses – especially in how much they can genuinely afford to pay and how much compensation may be ‘deferred’ due to equity participation.”

“There is a talent premium that can break through a salary structure,” Techcrunch added. “Startup founders are well-aware of the added value a true “A player” can bring to a fast-moving, small team – especially at a startup where the stakes are higher. These people are sometimes worth extending a greater slice of equity to attract or ramping up your burn rate for – they can be literally the difference between boom or bust. Thus, figures around these people can skew the averages.”